Guide to hot water systems for your home

man turning hot water tap on

Danny Baggs

Posted July 05, 2023

It pays to investigate which hot water system is best for your home. Here are your questions about domestic hot water systems answered.

If you need a new hot water system, there are plenty of options available to Victorian households. It's an important decision, because water heating makes up 15 to 27 per cent of an Australian household’s energy use, according to the Department of Climate Change, the Environment, Energy and Water (DCCEEW). That's the second largest household energy hog in the home after heating and cooling.

Many Victorians are turning to heat pump hot water systems, which can save money on energy bills. Here are your hot water system questions answered to help you decide which hot water system is right for you.

Hot water systems in your home: what you need to know

Is a storage or instantaneous hot water system better?

There are two types of hot water systems: storage or instantaneous systems.

Storage system

Hot water storage systems store water in an insulated tank, always keeping the water hot and ready for use. These tanks are usually made of copper, glass-lined steel, or stainless steel to help retain warmth, although there will still be some heat loss from the storage tank and its pipes. Storage water heaters can be powered by gas, electricity, solar or heat pump.

Instantaneous (continuous flow) system

Instantaneous hot water systems only heat water as you require it, so there’s no need for a storage tank. They can be powered by gas (natural or LPG) or electricity, and cannot run out of hot water since water is only heated as it is used. That said, using small and frequent amounts of hot water when using an instantaneous system can result in energy loss from continuous water heating and cooling.

man checking temperature of shower

Hot water is used in the kitchen, bathroom and laundry. Image: Getty

Which hot water system is best: gas, electric, solar or heat pump?

Gas hot water system

Until recently, high-efficiency natural gas hot water systems were considered the most economical type of water heater. Heat pump hot water systems, which run on electricity, are now much more efficient.

Gas-powered hot water systems should generally be reserved for instantaneous systems. That’s because storage systems use a burning gas flame to heat the water in the tank, and fire safety requires that there be no insulation at the bottom of the tank. This lack of insulation means that gas storage systems will experience higher heat loss compared to other hot water systems.

Gas hot water systems have a medium to high purchase, installation and running cost.

Electric hot water system

Resistive element electric hot water systems are currently used by about 50 per cent of Australian households, according to the DCCEEW. That may be because they are the cheapest hot water system to purchase and install. But unless they are powered by a solar PV system, electric hot water systems are the most expensive to run.

Solar hot water system

Solar hot water systems use energy from solar panels or collectors to heat water that flows into an insulated storage tank placed on the roof or the ground. Cold areas or winter months may require solar hot water tanks to use a booster powered by gas or electricity to help heat the water. While they are generally expensive to purchase and install, Sustainability Victoria reports that they use at least 60 per cent less energy than a conventional gas or electric hot water system.

Heat pump hot water system

Heat pump hot water systems are highly efficient, with almost an 80 per cent increase in efficiency compared to a resistive element electric hot water system. That’s because heat pump systems extract heat from the air to warm your water, rather than generating heat directly. In cold locations where temperatures regularly drop below 5°C, you will need a special heat pump water heater that is designed to work in frosty, snowy conditions.

Heat pump hot water systems can cost more upfront to purchase and install, but there are rebates available and they can cut down energy bills over the long run. If you have solar panels installed on your home, a heat pump system can also function like a battery, using your solar power to heat the water when the sun is shining and storing it for use when you need it later on, reducing your bills even further.

Heat pumps have very little risk of overheating in hot weather, since its compressor switches off once the stored water reaches the right temperature. Since a fan is needed to pull outside air into the heat pump’s evaporator, they can produce some noise, but quality heat pump hot water systems like the Apricus and Reclaim heat pumps are very quiet.


Watch Solar Victoria's video on how heat pump hot water systems work.

What is the most energy-efficient hot water system?

Sustainability Victoria reports that an electric heat pump hot water system is the most efficient hot water system on the market, using up to 80 per cent less electricity than a conventional electric hot water system.

Solar hot water systems are also very energy-efficient: Victorian households that switch to a solar hot water system can save between $140 to $400 each year on their energy bills, according to Solar Victoria.

Keep in mind that water heaters sold in Australia do not currently require Energy Rating Labels.

Which hot water system should I get for my home?

In general, a heat pump hot water system can save you money in the long run, making it an excellent choice for your home. You should do your own research, however, by talking to suppliers about which system will best suit your home.

When deciding on a hot water system for your home, think about purchase costs (including rebates) versus running costs, where the heater can be installed, and which energy source you can use, such as solar energy.

RACV Solar installing rooftop solar panels

Rooftop solar panels can power a solar or electric hot water system. Image: Matt Harvey

What size hot water system does my home need?

Which size hot water system suits your home depends on the number of people living in your home, plus your consumption patterns. For example, will you be running the washing machine and dishwasher at the same time, or do you have multiple showers that will be used at the same time?

One person uses about 50 litres of hot water per day, according to the Australian Government’s Your Home. Smaller households may find instantaneous hot water systems more practical than storage systems, while larger households may need a storage system to keep up with multiple hot water outlets being turned on at the same time.

How do I install a hot water system?

A licensed installer like RACV Solar can safely install a heat pump hot water system in your home. Make sure to ask your installer questions about which energy source (gas, electric or solar) is available to you, which system will best suit your climate, and the purchase costs versus running costs of different systems.


heat pump hot water system

RACV Solar can install a heat pump hot water system into your home powered by solar. Image: Supplied

Are there any hot water system rebates in Victoria?

Solar Victoria’s hot water rebate offers a rebate of up to $1,000 on eligible solar hot water systems and heat pump hot water systems, if you meet the following criteria:

  • you are the owner-occupier of an existing property, valued under $3 million, where the system is to be installed

  • your household’s combined taxable income is less than $180,000 per year

  • the hot water system being replaced is at least three years old from date of purchase

  • you and/or the property address have not already received a hot water rebate or solar battery rebate under the Solar Homes Program.

To obtain the rebate, contact an authorised hot water retailer like RACV Solar to get a quote for your hot water system installation. Apply for the rebate through the hot water rebate portal and wait to receive confirmation of approval by Solar Victoria before you arrange the installation.


Make your solar power go further with a hot water system that uses less energy.
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